On October 14, 2021, the ECJ issued the decision in the combined cases C-45/20 and C-46/20 (Finanzamt N). The cases both deal with the question if input VAT can be deducted on costs that were used for both taxable and exempt activities.
Context: Request for a preliminary ruling – Value added tax – Deduction of input tax – Council Directive 2006/112/EC, as amended by Council Directive 2009/162/EC – Articles 167 and 168(a) – Installation of a photovoltaic energy system – Establishment of an office in an otherwise private family dwelling – Immovable property – Mixed-use assets – Allocation to assets of a business – Compatibility with EU law of a Member State time limit for allocation and presumption of allocation to private assets absent evidence to the contrary – Loss of the right to deduct input tax
Article in the EU VAT Directive
Articles 167, 168(a) of Council Directive 2006/112/EC (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
Case C-45/20 concerns the deduction of VAT on the construction of a commercially used office in an otherwise privately used single-family dwelling. The applicant (E) claims deduction of input tax which he submitted for the first time in his delayed annual turnover tax return for 2015.
Case C-46/20 concerns the deduction of VAT paid in 2014 on the construction of a photovoltaic installation. The applicant used part of the electricity generated himself and partly supplied it to an energy supplier. The applicant (Z) claims deduction of input tax which he submitted for the first time in his annual turnover tax return for 2014, which was submitted late. Objections and appeals were unsuccessful in both cases. The cases are now before the highest federal court in tax matters (Bundesfinanzhof).
According to national case law, the full/partial earmarking of an asset for the company requires that the taxpayer has made a choice of earmarking in good time, explicitly laid down in documents. Since the criteria laid down by the Federal Finance Court for this purpose – a destination known to the tax authorities before the expiry of the deadline for submission of the annual turnover tax return – were not met in the present cases, deduction of input tax would not be possible.
In the light of the C-140/17 (Gmina Ryjewo) – Judgment – Input VAT deduction adjustment after change of use of capital goods, the question has arisen whether the criteria developed and applied so far by the Bundesfinanzhof for the exercise of the right of option of destination are compatible with EU law. The first preliminary question is intended to clarify whether a Member State may prescribe a limitation period for the allocation of the assets of an undertaking. The second question concerns the legal effect of exceeding the time-limit.
Source: minbuza.nl (Dutch)
The questions referred for a preliminary ruling in Cases C-45/20 and C-46/20 are identical, the facts and circumstances being briefly described below. In both cases, the deduction of input tax was rejected by the Finanzamt on the ground that the goods in question had not been timely allocated to the business.
Does Article 168(a), read in conjunction with Article 167 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 conflict with national case-law precluding the right to deduct VAT in cases in which the trader is entitled to choose the allocation of a supply at the time of purchase if the tax authorities have not adopted a decision on its allocation on expiry of the statutory deadline for submission of the annual VAT return?
Does Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax conflict with national case-law whereby allocation to private assets is assumed or presumed in the absence of (sufficient) evidence for allocation to the assets of the business?
1. In the circumstances of the main proceedings, national case-law precluding the right to deduct VAT in cases in which the trader is entitled to choose the allocation of a supply at the time of purchase, but no allocation decision identifiable by the tax authorities has been communicated to those tax authorities upon the expiry of the statutory deadline for submission of the annual VAT return, is incompatible with Article 168(a), read in conjunction with Article 167, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/162/EC of 22 December 2009.
2. In the circumstances of the main proceedings, national case-law whereby allocation to private assets is assumed or presumed in the absence of (sufficient) evidence of allocation to the assets of the business is incompatible with Article 168(a) of Directive 2006/112, as amended by Council Directive 2009/162.
Article 168(a) .. must be interpreted as not precluding national provisions interpreted by a national court in such a manner that where a taxable person has the right to decide to allocate an asset to his or her business assets and where, at the latest upon expiry of the statutory period for submitting the annual turnover-tax return, the competent national tax authority has not been put in a position to establish such an allocation of that asset by means of an express decision or sufficient evidence, that authority may refuse the right to deduct value added tax in respect of that asset on the ground that it has been allocated to the taxable person’s private assets, unless the specific legal arrangements under which that option may be exercised show that it does not comply with the principle of proportionality.
See also here some German background: steuerlex.de
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